With winter coming, is Mexico ready for another natgas shortage?

Even though Mexico has secured more than US$20bn in planned investments for liquified natural gas (LNG) infrastructure in recent years, an expert says the country could do more to prevent another massive gas shortage.

“There are still many questions in different regions of the country about how you’re going to generate gas availability,” Pablo Zárate, senior managing director at FTI Consulting, told BNamericas. 

“What [the gas crisis in] 2021 made clear is that [the government] needs to take action in two directions. One, future proofing of the essential infrastructure. And two, having the controls and financial insurance to ensure an event like that does not occur again,” he said. 

During the February 2021 Uri winter storm, which brought deep-freezing temperatures to North America, factories across Mexico’s northern region – Chihuahua, Coahuila, Tamaulipas and Nuevo Leon states – reported billions in losses due to a reversal in the flow of US natural gas into Mexico.

Natural gas is Mexico’s main fuel source, accounting for 48% of power generation, and 70% is imported from the US, according to a report from the UN Economic Commission for Latin America and the Caribbean (Eclac). But when the storm hit the north-central region of the US, Mexico’s northern neighbor opted to prioritize its own rise in demand.

Source: EIA

Consequently, pipeline deliveries of natural gas dropped dramatically in three days from 6Bf3/d (billion cubic feet per day) to slightly under 3.5Bf3/d, according to the US Energy Information Administration (EIA), which reported that Mexico imported 5.6Bf3/d from the US in 2022, a decline of 4% on the previous year. 

Experts point to a lack of domestic production as one of the problems for Mexico, but also little investment in storage infrastructure. 

According to the Center for Strategic and International Studies (CSIS), the country could seek other sources to reduce its dependence on the US, with renewable energy being among the most logical solutions. 

“Over the long term, Mexico will need to tap into its considerable potential in the field of renewables, but this will not be sustainable if private investment is excluded from Mexico’s energy sector,” the CSIS said in a report published in August. 

Could LNG be the solution? 

But according to FTI’s Zárate, the need for more natural gas distribution represents an area of opportunities for the private sector. 

“It is very interesting that Mexico, although it is part of North America, continues to be a space where the opportunity for the development of infrastructure and the opportunity for the search for creative solutions from gas continues to be a very fertile space,” he said. 

Specifically, Zárate referred to the series of foreign investments in LNG infrastructure confirmed in recent years that could help Mexico become one of the world’s top exporters.

The list is topped by the initiatives of Mexico Pacific Limited, which is behind the US$14bn Sahuaro Energía plant at Puerto Libertad port in Sonora state; US firm Sempra, which is seeking to convert its Energía Costa Azul terminal in Ensenada, Baja California state, with a US$2bn investment that will add LNG operations by 2025; and New Fortress Energy, which partnered with federal power company CFE to build an offshore LNG export hub with a US$1.3bn first stage, off the coast of Altamira, Tamaulipas state.

While the Altamira FLNG plant is set to become Mexico’s first to come online, Sempra's Energía Costa Azul, the second most advanced, will be the first on the Pacific side and construction of Mexico Pacific's Saguaro Energía terminal, described by the company as the largest foreign direct investment in Mexico to date, is expected to start this year with operations beginning in 2028.

New LNG investments are also expected to improve Mexico’s gas distribution network, as some of them involve major projects such as the roughly 800km, 48-inch diameter pipeline that will deliver gas to the Sahuaro Energía plant from Texas.

These are “significant projects with a truly historic amount of investment. We are talking about investment records when these projects are completed. There is a significant area of opportunity there,” Zárate said. 

“There is the possibility of finishing something that has been a kind of dream for the last 10 years, which is to take advantage of Mexico as a very efficient strategic gas export platform to Asian markets, allowing new efficiencies to be generated,” he said.